DEPARTMENT

OF ECONOMIC GAUTENG INNOVATION STRATEGY

DEVELOPMENT

EXCO Submission 30/09/2010 | Gauteng Provincial Government,

Department of Economic Development

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Table of Contents
1. Executive Summary ................................................................................................... 2
2. Introduction .............................................................................................................. 4
3. Problem Formulation ................................................................................................. 5
4. Strategic Goal ............................................................................................................ 6
5. Objectives ................................................................................................................. 8
6. Delivering the strategy............................................................................................. 12
7. Expert Panel for Innovation ..................................................................................... 13
Appendix A: Defining Innovation .................................................................................... 14
Appendix B: Innovation and Development ...................................................................... 21
Appendix C: Systems of Innovation ................................................................................. 27
Appendix D: National and Provincial Policies .................................................................. 31

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 1. Executive Summary
Innovation is at the heart of a country’s, and regions, progression along the developmental path. Innovation
finds new and more efficient ways of solving the problems faced by every part of society – and a society that
does not innovate can never do more, with less.

This Gauteng Innovation Strategy begins by explicitly recognising the importance which must be attached to
socially-oriented innovations. At the same time, recognising that communities themselves are the source of
innovation, as well as individuals, will provide direction as to how, why and where we should be supporting
innovation. It will also help in understanding the benefits that can arise from innovation.

The Innovation Strategy Statement for Gauteng will be:

To accelerate innovation in all its forms, in order to bolster and support the broader strategic
objectives of employment creation, and sustainable social and economic development.

The outcomes achieved through the implementation of this strategy will then be:

A more efficient use of resources – both public and private – in delivering on the objectives of the
various strategies and policies developed by the Provincial Government

The creation of new and valuable knowledge relevant to the social and economic priorities
identified in other policy and strategy documents

To support the movement towards an advanced, knowledge-based economy by creating
appropriate functions and infrastructure.

Flowing from this strategy are two objectives:

To improve the competitiveness of the Gauteng economy, in particular a set of identified strategic
sectors

To improve the efficiency of the provincial government in delivering services

In order to achieve these, there are specific sub-objectives:

Economic Competitiveness
o Improve internal efficiency of organisations
o Improve external or environmental efficiencies
o Create new local value and knowledge chains

Government Efficiency
o Improve ability of government to purchase and drive innovations
o Use government demand to stimulate innovation in particular areas

These must be reflected in a set of specific, achievable projects and interventions. Currently, proposed
intervention strategies include:

The development of an information and knowledge exchange network, with characteristics of both
social networks, as well as open innovation systems; this includes high speed ICT access at a
household level

Incentivisation programmes to stimulate appropriate research, development and innovation aligned
to the provincial strategies; this will include both direct incentivisations such as ‘innovation
vouchers’ as well as the potential use of government procurement

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The development of specific industrial innovation clusters, focused on driving innovation in a low
carbon economy, green technologies, and other industries as identified by the Gauteng Industrial
Policy

The implementation of an “Industry Innovation” unit with a specific mandate to address industrial
process innovation and design at an industry scale

Where other strategic interventions can be identified and added, they will be. It is then through these, that
innovation within the province can not only be supported, but actively promoted and accelerated.

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 2. Introduction
This strategy seeks to promote, support and encourage innovation in all spheres of society within Gauteng.
This is done to ensure that the needs of citizens, and the demands of consumers, are met in the most
efficient and complete way possible. These interventions will also catalyse innovation towards achieving the
various strategic priorities of the province.

It is also important to consider the breadth of authority which the provincial government has in influencing
innovation. Many of the important factors lie within the scope of national government departments and
ministries.

For example, tax regimes are exclusively the role of national government. Therefore, it is not possible for
Gauteng to become directly involved in providing income tax relief to companies with regards to research
and development. In a similar way, although the tertiary education system is critical in the overall innovation
system, provincial governments have no direct say in the activities of these institutions.

Having said that, there are a range of indirect ways in which the provincial government may be able to
support companies, despite not have direct influence. For example, by creating and facilitating interactions
between universities and private sector organisations – a role undertaken by agencies such as The
Innovation Hub. So while direct interventions may not always be possible, there are other secondary
mechanisms that may prove just as influential.

The strategy recognises that innovation comes in many forms. These different perspectives all deserve
different treatment, and the way they impact on society and the economy is distinct for each. The most
crucial departure that this strategy takes from many other innovation strategies, is the prominence given to
social innovation, as well as open innovation. This places the Gauteng Innovation Strategy at the forefront of
creating a strategy that is not confined to narrow economic outcomes, and helps to create an inclusive
innovation system.

What is Innovation?
Innovation is, put simply, the process by which new solutions are discovered to solve problems facing both
consumers and citizens. Traditionally, it has been generally restricted to “Science, Technology and Process”
innovations. However, there has been significant movement towards a much broader understandig of
innovation, to include innovation within the social and public arenas as well.

At the same time, where innovation has traditionally been thought of as being located within high-end
research laboratories and academic institutes, there is an increasing role played by open innovation
networks. These networks are generally less concerned about protecting intellectual property, as the
community developing the solution is generally the same that will be using it.

Finally, innovation is also often thought to be “ground-breaking”. This does not have to be the case; in fact,
most innovation occurs through technology and information transfers from one place to the next. Innovations
which are new to an organisation, or to a country, may have just as significant an impact as those which are
completely novel.

This strategy recognises the importance of these three characteristics of innovation: a broad concept of
innovation, rather than a narrow one; the potential of open innovation networks; and the importance of
innovation transfers.

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 3. Problem Formulation
Based on the understanding provided above, what are the core issues that must be addressed in order to
drive innovation?

1. INNOVATION ≠ SCIENCE
We must recognise and drive all forms of innovation, not simply scientific and technological innovation.
This will allow us to support the demands of citizens, and the ability of government to deliver on its
mandate

2. SOCIETY IS NOT A PASSIVE RECIPIENT

Members of society play an active role in driving innovation, especially if they are involved in the actual
innovation process. Therefore, the role of society in innovation must be developed further, and
mechanisms to strengthen this role must be created

3. COMMUNITY INVOLVMENT BUILDS PARTNERSHIPS

Society is not just an active participant in innovation, but is ultimately responsible for all demand for
innovation. This means that in order to innovate in a relevant fashion, the needs of society must be
directly taken into account – and so by bringing communities into dialogue with other agents,
partnerships can be built to drive social and economic development

4. INNOVATION STRENGTHENS THE SUCCESS OF OTHER POLICIES

By integrating innovation across various other policy documents and strategies, it is possible to
continuously improve upon, and support, the delivery of any other strategy. Innovation is therefore a
cross-cutting, environmental factor that can help support other strategies in achieving their own
objectives

5. INNOVATION CAN BE USED STRATEGICALLY

Although undirected innovation is important in maintaining overall levels of technological advancement,
the support and encouragement of innovation within particular areas represents an opportunity to create
structural changes, particularly in the industrial sectors of the Gauteng economy. This leads to more
competitive industries, faster growth and future employment security.

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 4. Strategic Goal
It is clear that there are a number of pre-existing strategic and policy objectives adopted by both National
and Provincial governments, as well as the Department itself.

It is then necessary to align any innovation-related strategy with these, in order to support, and drive, the
higher strategic priorities.

The Innovation Strategy Statement for Gauteng will be:

To accelerate innovation in all its forms, in order to bolster and support the broader strategic
objectives of sustainable social and economic development, and sustainable employment

The outcomes achieved through the implementation of this strategy will then be:

A more efficient use of resources – both public and private – in the achievement of the DEDs
overall strategic objectives

The creation of new and valuable knowledge relevant to the social and economic priorities
identified in other policy and strategy documents

To support the movement towards an advanced, knowledge-based economy by creating
appropriate functions and infrastructure

The overall strategic framework is provided overleaf. This shows the hierarchy of objectives and
interventions planned in order to achieve the overall strategy.

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 AIMS OF THE GAUTENG INNOVATION STRATEGY
ECONOMIC COMPETITIVENESS
AREA DESCRIPTION
INTERNAL EFFICIENCY
Internal Industrial Increase the global competitiveness of local
Efficiency industry through supporting innovation in
manufacturing process, industrial design and
logistics
EXTERNAL / ENVIRONMENTAL FACTORS
Effortless Improve communication networks of buyers
communication and and sellers of innovation through social
access to information networking systems and infrastructure
Innovation Spaces Create physical and virtual spaces for the
encouragement, support and promotion of
innovation, e.g Science Parks and virtual
collaboration spaces
Public Awareness Increase the awareness of, and appreciation,
of innovation as a driver for social and
economic growth through innovation
evangelism, partnerships (e.g. with Design
Institute), and science education campaigns
(e.g. Smart Young Mindz)
Standards and Support the establishment of rigorous
Regulations standards, criteria and regulations for
innovative products; further, to assist
organisations in meeting these standards for
both local and international production
Inclusive Innovation Create open innovation networks to connect
socially and economically disadvanted
communities with an ability to influence
relevant innovation processes
PRODUCTION OF LOCAL KNOWLEDGE AND IP
Local Value Chains Create local knowledge and local value
chains to promote higher local value-added
production, rather than importing IP
Promote Business Increase the level of business R&D amongst
Research and small and medium enterprises through
Development partnerships and subsidisation schemes
GOVERNMENT EFFICIENCY
Generic innovation Identify and implement mechanisms for
procurement government to purchase novel or innovatibe
solutions, in order to accelerate service
delivery with the best and most efficient
solutions possible
Strategic innovation Create and implement a mechanism for
procurement government to stimulate innovation to
address specific service delivery challenges
across all spheres and departments
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INTERVENTION
Creation of an “Industrial Innovation
Unit” (IIU) located at The Innovation
Hub, focussing on industrial design
and innovation
Innov8 Network, social networking
systems and events (e.g. BlueIQ
Portal Technology, TED-type events)
The Innovation Hub, virtual-TIH,
Johannesburg Science Park
Public awareness campaigns in
partnership with like-minded
organisations (potential examples
include SABS, CSIR, Universities)
For strategic industries (e.g. solar
water geysers) understand and make
representations to SABS regarding
international standards and support
local industries through IIU
Create open communication
platforms to encourage community
participation in social and public
innovation projects
Facilitate the commercialisation of
relevant knowledge through
incubators and entrepreneurship
Investigate mechanisms such as
Innovation Vouchers to stimulate
business-led innovation
Understand and evaluate public
regulations regarding the
procurement of innovations and novel
products, and suggest amendments
for transparent procurement
Evaluate the possibility of a Small
Business Innovation Competition to
be used in strategically addressing
specific government demands
 5. Objectives
The strategy statement is founded on the understanding that innovation can drive and assist Gauteng in
achieving the global objectives of increased economic competitiveness and improved government services.

Although innovation is not a direct driver of employment, by improving the competitiveness of specfiic
industries, the demand for employment is stimulated. A central characteristic of each sub-objective is the
mechanism which drives employment creation. Thus, for example, in promoting a green economy, attention
will be paid specifically to supporting the labour-intensive aspects of any green economy.

In respect of government services, innovation can address two parallel problems. Firstly, there are a range
of new products and services which can help in service delivery; however, procuring innovative services can
be difficult within the context of procurement regulations. However, government services can also act as a
major demand driver for innovation.

5.1 Improved Economic Competitiveness

Innovation allows economies to function more efficiently, and to utilise resources more effectively. There are
three sub-objectives in this section.

All of the various sub-objectives have a general focus in “green” technologies. “Green” is not simlpy a stand-
alone industry; instead, it is a cross-cutting way of doing business. The Innovation Strategy has been
constructred so that there is a strong intersection between it and the Green Economy Strategy – the
Innovation Strategy is applied in the areas of focus for green. For example, under standards and regulations
that promote innovation and technology transfer, one of the first areas to be looked at are those for solar
water geysers – a key feature within the Green Economy strategy.

Internal Industrial Efficiency

The primary objective for this is to improve the competitiveness of local industries, strategically identified
through the Gauteng Industrial Policy. By assisting companies to innovate in areas such as logistics, design,
and manufacturing processes, industries in Gauteng will increase their ability to compete in global markets,
as well as produce goods for local consumption more efficiently.

Research is currently underway regarding the establishment of an Industrial Innovation Unit, located at The
Innovation Hub. This unit will, in partnership with relevant organisations (such as the SABS Design Institute,
the AIDC), engage industries identified through the Gauteng Industrial Policy, in innovating around their own
specific needs and challenges.

This component specificall seeks to accelerate the aims and goals of the Gauteng Industrial Policy.

Effortless communication and access to information

Innovation is stimulated through the interaction of ideas and challenges. Without a clear understanding of
the specific challenges requiring solutions, it can be difficult to innovate effectively for those challenges. At
the same time, the greater the number of people looking at a problem, the easier it is for that problem to be
solved. However, this can only happen if there are easy and non-threatening channels of communication
between the “buyers” of innovation (i.e. those with the need) and the “sellers” of innovation (i.e. those who
can deliver a solution).

Therefore, additional communication and social networking structures will be investigated. Existing
structures include the Innov8 network at TIH and other local innovation communities, such as the Mobile
Monday network. By supporting and encouraging these networks, increased information flow will lead to
increased innovation.

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 One of the key ideas within the Gauteng ICT Strategy is for households to have accesss to high-speed
internet connections. Therefore, this component is heavily reliant on the successful implementation of the
ICT Strategy, which includes household broadband as a focus area.

Provision of Innovation Spaces

The purpose of this component is to provide neutral, catalytic environments in which innovation can be
safely and efficiently undertaken. These environments can take numerous different forms, from electronic
social networks, to physical clusters of infrastructure such as The Innovation Hub. This can extend even
further to entire manufacturing hubs and precincts using innovative manufacturing techniques, logistic
systems and so on.

Importantly, by creating this kind of environment, local innovation (as well as foreign-driven but locally
executed innovation) becomes promoted, thus driving local knowledge production. This allows Gauteng to
being creating value based on its own intellectual property, rather than acting as a ‘middleman’ for imported
intellectual property.

Studies are underway both in existing sites such as The Innovation Hub to expand the service offering, as
well as for the development of new sites in Johannesburg, such as the Johannesburg Observatory.

Public Awareness

Innovation is still largely seen as the preserve of scientists, engineers and inventors. Although they play an
important role, innovation can and is undertaken by anyone who identifies a more efficient solution to a
problem. While this new solution sometimes requires technological expertise to bring to fruition, it is not a
pre-requisite. Furthermore, the importance of innovation cannot be underestimated in addressing social and
public challenges – the difficulty lies in getting these ideas to society. Many ideas are in fact discarded, not
because they are bad ideas, but simply because people do not know how to take them further.

This component will therefore seek to publicly promote both the importance of innovation within society, as
well as the channels by which individuals and organisations can get support and assistance in taking their
ideas to market and society. This will be achieved through public awareness campaigns, innovation
competitions (e.g. Smart Young Mindz) and partnerships with similar organisations (e.g. SABS Design
Institure, CSIR, Universities).

Standards and Regulations

One of the challenges in innovation is that there are no existing legal standards by which they can be
accredited. This is especially difficult for small organisations who area capable of innovating, but cannot
afford the long process of waiting for SABS approval and standardisation. This has already affected the
ability of local industries such as solar water geysers, construction material and others who are unable to
obtain any sort of accreditation. This can severely restrict innovation, especially if potential returns are
delayed by several years – thus negating the benefits of first-to-market innovations.

This area will therefore identify mechanisms by which innovative products can be appropriately accredited
and sanctioned by the relevant organisation. This may possibly include support in international accreditation,
and subsequent recognition by local authorities.

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 Inclusive Innovation

It is an obvious statement that the best solutions respond in full to the problems they are designed to solve.
However, particularly in respect of socially-oriented challenges, these problems are often not fully
understood. But involving community members in the innovation process itself, they are able to provide
direct and immediate feedback into the approriateness of a given innovation.

The creation of open innovation networks between innovators and communities will be researched and
evaluated in order to create an inclusive innovation system within Gauteng, that addresses the needs of
citizens.

Local Value Chains

Only in certain areas does South Africa, and therefore Gauteng, have strong local intellectual property. This
means that a large portion of the service and product value is imported to the country from elsewhere – this
IP is generall quite expensive. This is especially painful given that many of the underlying resources are in
fact mined in South Africa and exported for value-add reprocessing. It is therefore critical to ensure that
more IP is localised, to ensure that we do not have to import IP in the same goods that were exported.

The aim here is to incrementally increase local IP and local value chains within the manufacturing industries
to ensure that we move upwards along production value chains. This will entail research – combined with
the existing research into industrial strategy – around the potential industries where innovation and local IP
can achieve significant success.

Promote business Research and Development

While the creation of local value chains (as above) is strongly focussed on promoting research and
development, they are restricted to specific industries identified by the Gauteng Industrial Policy. This
excludes a wide range of potential innovations that local business might identify in other sectors. While there
do exist certain mechanism to support this at a national level, these mechanisms are restricted to scientific
innovation only. This can exclude a wide range of innovations including organisational, process and social
innovation that are just as critical in meeting the needs of citizens and consumers.

Therefore, a mechanism that will be explored is the establishment of “Innovation Vouchers”, which
effectively subsidise research into new product and service lines with accredited research organisations.
These vouchers allow organisations to undertake research (which is generally not the main focus area of the
majority of business and non-government organisations) into create better solutions, products and services.

5.2 Government Efficiency

Although provincial government does not have a direct role in funding research and development projects (in
the sense of the National Research Foundation) it can still bring a massive demand into the market for
innovation. At the same time, identifying innovative solutions to existing problems can drastically improve the
ability of government to deliver services with limited budgets, particularly if the innovations are around more
cost-efficient solutions (such as in housing).

Generic Innovation Procurement

Citizens, private business and non-governmental organisations often identify potential mechanisms for
government to improve its ability to deliver services. However, there currently exist limited means to explore
these options. The primary reason for this restriction are the regulations put in place by the Public (and
Municipal) Finance Management Acts. These Acts are in place to ensure transparency and accountability in

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 public organisations; however, their implementation at present can act as a deterrent for government to
procure optimal solutions.

Therefore, research will be conducted to understand how other regions and governments have maintained
financial accountability, yet still promoted innovation and the procurement of innovative solutions. Examples
include the US, UK, Ireland, Australia, New Zealand; all have similar rigorous financial controls, but have
nonetheless stimulated innovation through government procurement.

Strategic Innovation Procurement

In delivering services, the provincial government is faced with a range of delivery and environmental
challenges. This may include resource constraints, technology constraints, manpower shortages and others.
By redirecting a small portion of government expenditure into researching and developing better solutions to
these challenges, service delivery can be radically improved and quickened.

A business case is being developed for the establishment of a Provincial Government Innovation
Competition (PGIC), to be located at The Innovation Hub. The PGIC will collect innovative responses to
specific government challenges, and support the development of these innovations to a commercialised
state.

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 6. Delivering the strategy
A coherent structure must be in place to deliver the strategy appropriately, along with timelines for the
development of the various research areas and business plans.

A strategy delivery office (SDO) will be established at the Innovation Hub to ensure the completion of the
various business cases and research areas identified in this strategy. This SDO will be primarily a
programme management office; primary responsibility for the strategic direction will remain with the
Department of Economic Development.

Therefore, the outputs of the SDO will be:

AREA ITEM DEADLINE NOTES

Internal industrial efficiency Industrial Innovation Unit concept 31 March 2011 Underway at BIQ;
document dependent on approval of
Gauteng Industrial Policy
Effortless communication Social and communication - Extension of existing
network map activity at TIH
Innovation Spaces Observatory Science Park 31 March 2011 Underway at BIQ
concept document
Public Awareness Campaign concept document - New proposal
Standards and Regulations Report on relevant standards in - New proposal
target sectors
Inclusive Innovation Open Innovation network rollout - New proposal
concept document
Local Value Chains Research report on prioritisation - New proposal; dependent
of industries on approval of Gauteng
Industrial Policy
Promote Business R&D Innovation Voucher Concept 31 March 2011 Underway at BIQ / TIH
Document
Generic Government Research report on regulatory - New proposal
Procurement options for innovation
procurement
Strategic Government Business Case for Provincial 31 March 2011 Underway at BIQ / TIH
Procurement Government Innovation
Competition (Pilot case
undertaken by 31/3/2011)

For those items which are new proposals, the SDO will cost and develop appropriate project management
structures for the development of the research outputs. This will be taken through the appropriate channels
within DED for approval.

This list is not exhaustive, and represents initial interventions identified for the support of innovation within
Gauteng. Additional interventions may be added (or these removed) as and when appropriate.

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 7. Expert Panel for Innovation
The final component of the Gauteng Innovation Strategy is to establish a group of advisors with expertise in
the field of innovation, to provide regular guidance on the appropriateness of the strategy given loca and
global environmental factors. This will allow the strategy to evolve in time to continuously meet the needs of
the province, and keep abreast of the latest developments in innovation thinking. It should be noted that
community involvement in the development of the strategy will be maintained, ensuring that both experts
and the community are involved in the strategy development process.

The advisory panel is to be constituted by appropriate members of the various stakeholders listed below.

The Provincial Department of Economic Development

All major Gauteng-based tertiary institutions

The Provincial Department of Education

The Provincial Department of Social Development

The National Department of Science and Technology

Chambers of Commerce

Organised Labour movements

Metropolitan and District Municipalities

International organisations, including embassies and foreign missions

Other innovation experts

The primary role of the Panel will be to provide expert guidance on the Innovation Strategy itself; this is
expected to be an annual revision process. Members of the panel will further be required to provide support
for the Innovation Strategy mechanisms, as and where they are more directly involved (for example, in
collaboration efforts between universities and government departments around innovation, both Panel
members will be expected to provide support).

Details of this panel are to be finalised and established once approval has been given for the implementation
of the Gauteng Innovation Strategy.

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Appendix A: Defining Innovation
An unofficial definition of innovation can be stated simply:

Innovation is the process by which new and valuable knowledge is produced and utilised within society

Although this definition is suitable for a basic understanding of the concept of innovation, it is necessary to
expand this definition significantly, in order to identify mechanisms to promote innovation. It will also be
necessary in order to better understand the role which innovation plays within society.

The Organisation of Economic Co-operation and Development (OECD) has, since 1992, invested significant
amounts of time and energy into the measurement and understanding of Innovation, and how it relates to
economic development.

The Oslo Manual represents the OECDs guidelines on this measurement, and provides some insight into
firstly, a definition of Innovation, and secondly, the understanding of Innovation within the South African
government context.

Since 1992, the definition of “Innovation” has gradually expanded. The first two editions of the manual (1992,
1997) used what is termed the Technological Product and Process (TPP) definition of Innovation. This was
to indicate the focus on the technological development of new products, as well as new production methods.

Subsequent versions of the Oslo Manual have then referred to an expanded definition of the term
“Innovation” – specifically expanded to take account of other forms of innovation, such as marketing and
organisational innovation. According to the 2005 Oslo Manual,

“An innovation is the implementation of a new or significantly improved product (good or service), or
process, a new marketing method, or a new organisational method in business practices, workplace
organisation or external relations.”

Closely connected to this, however, are the notions of “Innovation Activities”, and the “Innovative Firm”:

“Innovation Activities are all scientific, technological, organisational, financial and commercial steps which
actually, or are intended to, lead to the implementation of innovations…”

“The Innovative Firm is one that has implemented an innovation within [a particular time frame]”

These concepts provide a solid basis from which to expand and modify our understanding of innovation, and
how it is possible to influence the innovation process to achieve social and economic benefits.

South African Definitions of Innovation

According to the National Advisory Council on Innovation (NACI), “innovation” can be defined as

“…implemented technologically new products and processes as well as improvements in such products and
processes”

This is closely related to the TPP definition of Innovation of the first and second Oslo Manuals, but excludes
the expanded forms of innovation such as marketing and organisational.

An Expanded Definition of Innovation

The OECD’s Oslo Manual recognises that its analysis is limited, in that:

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The Manual covers innovation in the business enterprise sector only

It deals only with innovation at the level of the firm

It covers only four types of innovation – product, process, organisational and marketing

It covers diffusion up to the level of the firm

This is perfectly acceptable for the purposes of the manual. It is critical, however, for any government
strategy or policy to move beyond these limitations to a wider understanding of innovation. Doing so will
allow for a more complex and appropriate set of interventions to stimulate innovation in all its forms. It should
be noted that the South African definition of Innovation is closely related to that of the 2nd Oslo Manual.

This document now outlines several proposed adjustments to the concept of “Innovation” which should be
adopted as part of the Provincial Innovation Strategy.

Innovation encompasses all forms of knowledge

Innovation is ultimately the production and diffusion of new and valuable knowledge. This knowledge is not
restricted only to technological products and processes. More generally, this knowledge is not necessarily
limited (at least initially) to economically valuable knowledge.

Instead, any form of knowledge or idea which is demanded by any part of the community, and which is
subsequently created to meet that demand, can be understood as an Innovation. Assuming that innovation
can only ever meet a market demand presumes that markets exist for the product prior to said innovation.
This is, however, not the case for so-called “disruptive” innovations which create their own markets post
innovation.

Furthermore, the assumption that product-related innovation (whether in the form, function, production or
management) is the most important form of innovation, excludes critical types of knowledge production such
as social innovation.

Social innovation is related to organisational innovation, except instead of restructuring firm-level processes
to achieve greater efficiencies – and thus profits – social innovation relates the ability of community
structures and members to implement new social structures in order to achieve social benefits. This concept
requires significant further work to clarify and detail, however, some examples should provide a working
definition.

Safety & Security: Numerous communities throughout South Africa have, initially at a community
level, implemented various forms of security measures to protect against the prevalence of crime.
These include concepts such as “security villages”, protected or restricted access to
neighbourhoods, and community policing forums. Although certain of these may have evolved out
of, for example, “community watches” they represent innovation at a social level, for social benefit,
rather than for economic profit motives

Community Welfare: The Community Works Programme being piloted in South Africa is an
example of an innovative mechanism for which ensures a variety of benefits accrue to society. It
functions as an employment safety net, thus ensuring that at least some income is generated by
communities. It also achieves provides various ‘public goods’ in a limited fashion, thus supporting
the work already performed by government in a number of areas

Education: The Open University in the United Kingdom was the first institution that combined
several different items – distance education, technology adapted for education, and minimal entry
requirements for degrees. The result was a properly innovative mechanism for providing hundreds
of thousands of citizens with access to high-quality education, using technology wherever possible

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 to support the education process. This directly responded to social needs of education and self-
development

Where product-related innovation satisfies the demands of consumers, social innovation meets demands for
public good which are not necessarily satisfied through current structures. There is a strong argument that
South Africa is more in need of solutions to the latter problems, than the former; trickle-down effects from
economic growth are not having a sufficient impact on the social challenges of the country, and so new
social processes and initiatives must be conceptualised to deal with these challenges – in other words,
social innovation may be of more importance to the South African environment than product innovations, at
least in the short- to medium-term.

The Community as Innovators

The structures put forward by the NACI (detailed in Section B: Systems of Innovation) put forward the idea
that innovation (understood by the NACI as product-type innovations) is performed by various institutions,
including

Higher Education Institutions

Public Research Institutions

Private Sector Organisations

Enterprises

Non-government Organisations

While all of these institutions do, in fact, perform innovative activities, there are additional innovative actors
that should be considered.

Firstly, innovation – whether within an institution or not – is ultimately performed by individuals. The benefits
arising from that innovation, may rest with the firm (or other entity, but for simplicity this document will only
refer to the “firm”) but it is performed by an individual, or at least groups of networked individuals. Therefore,
it is important to explicitly recognise that innovation is an individual activity.

These networks may be either formal (e.g. within a company) or informal (such as self-organising
communities). Although inventions are almost inevitably achieved by single individuals, innovations result
from multiple skills and disciplines, partnerships and collaborative work.

Secondly, and through the recognition that innovation is performed by individuals, it is clear that there are
significant amounts of innovation that is not co-ordinated or performed within the constraints of either firms,
or government policy. The clearest example of this is the open source software movement, in which
individual programmers contribute time and energy, with no specific personal benefit in mind, to produce
goods that are used by a greater community. There are a range of other multi-billion US dollar industries
which have evolved through the dedication of a small interest group, with little to no interest from either the
private sector or government1.

Thirdly, social innovation is often driven by members of a specific, but potentially small, community. There is
therefore no economic incentive for firms to develop appropriate solutions; at the same time, depending on
the nature of the community, it may be difficult for innovators to even be aware of the demands of that
community. In the South African environment then, while various communities may face a range of
challenges, these challenges are not communicated to the wider social network. It is then difficult for groups
that may have existing solutions to connect to those demanding solutions. The result is that the communities

1 Examples include off-road / mountain biking, as well as the Hip-hop music industry – both started as community efforts

with no commercial or government influence.

16 | P a g e
 themselves ultimately begin crafting their own solutions, which may be similar in nature, but are developed in
isolation.

The fourth and final characteristic that should be recognised is the increasing collaboration that occurs
between firms and the community in the final development of products and solutions. Although this is
currently most obvious in certain product-oriented innovations, it can be extended outwards into social
innovations with the appropriate tools. Examples of this would include Microsoft’s (and other IT firms) use of
Beta-testing a product before final release. In this process, a “beta” version of a product is released to a
limited community of interested parties (though in Microsoft’s case this may be several million users). These
users then provide feedback and comment on the product before it goes into its final development phase
and released to the general public. This process helps to bind the community into the innovation process.

The Cathedral and the Bazaar

In 1997, Eric S. Raymond coined the phrase the Cathedral and the Bazaar. He was specifically referring to
software development processes in relation to Linux; however, broad concepts of this can be expanded
towards innovation in general.

Cathedral-type development involves a small group of individuals, or a single organisation, which labours to
produce a single, grand solution. There is limited involvement of the wider community in such development
or construction, and it is assumed that the end-product (the Cathedral) will meet the needs of the general
population.

On the other hand, Bazaar-type development involves as many individuals as possible, constantly
negotiating and developing small scale innovations. This, by necessity, requires intense collaboration
between all the different role-players, and constant monitoring and evaluation of the viability of solutions.

Each mode has a specific strength, and related challenge.

Cathedral-type development is extremely focussed on a particular outcome, and can be clearly defined from
the beginning. Construction will not start until there is a clear goal in mind. This provides a very structured
approach, and can address long-term strategic issues. However, because of the lack of collaboration, and
the minimal number of solution developers involved, finding the most efficient solution takes time; it may also
ultimately not respond to the needs of the population.

Bazaar-type development is diametrically opposite to this – in that it directly responds to the immediate
needs of society, and tends to produce a strong sense of ownership within that society; because they are
involved in solving their own problems, they take more responsibility for ensuring the success of whatever
solutions are developed. The drawback, however, is that Bazaar-type development is, of necessity, small
scale – and being small scale, cannot directly address longer-term strategic issues. It drifts according to the
whims of the people involved.

One of the “laws” which was recognised in this description was loosely stated as: “with enough eyeballs, all
bugs are shallow”. This is taken to mean that if enough people are considering a challenge, the solution will
be easy to find.

This speaks to the heart of Open Innovation – by inviting as many people to solve problems as possible, the
most efficient solution will be found with the least effort.

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 Social Innovation
Social innovation is related to organisational innovation, except instead of restructuring firm-level
firm processes
to achieve greater
er efficiencies – and thus profits – social innovation relates the ability of community
structures and members to implement new social structures in order to achieve social benefits

Where product-related
related innovation satisfies the demands of consumers, social
social innovation meets demands for
public good which are not necessarily satisfied through current structures. There is a strong argument that
South Africa is more in need of solutions to the latter problems, than the former; trickle-down
trickle effects from
economic growth are not having a sufficient impact on the social challenges of the country, and so new
social processes and initiatives must be conceptualised to deal with these challenges – in other words,
social innovation may be of more importance to the South African environment than product innovations, at
least in the short- to medium-term.
term.

Social innovation has different driving forces to economic innovation – it is natural then that the mechanisms
for incentivising social innovation must also differ. It may be closely connected with Public Innovation (dealt
with separately below), but can often be performed by communities and community-based
community organisations.
Here, the constraint on innovation may not be a profit-motive,
profit motive, but rather a direct lack of resources –
community-based
based organisations would very much like to do their work more efficiently, but do not have the
capacity to develop those solutions themselves.

What is also important about social innovation, especially that performed by communities, is that there
ther is a
much stronger sense of ownership of the solution. Social innovations are often locally developed, but these
successes are not necessarily disseminated amongst the wider community. On the other hand, social
innovation solutions which are government-driven
government – through public innovation processes, for example – tend
to be widely disseminated, but not necessarily “owned” by the people on the ground.

Figure 3.1: Relationship between ownership and transferability in social innovation, NESTA, SC/03, March 2007
2

Figure 3.1 shows the relationship between the transferability of a social innovation, and the ownership felt by
the developers of that innovation. The fundamental characteristic of a truly successful social innovation will
be the personal ownership of that innovation, by each member of society.

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 Public Service Innovation
Much of the focus on innovation, as noted already, is on those types of innovation driven by the private
sector, for private sector consumers. However, there are significant efforts made in public service innovation
– in other words, in attempting to identify new mechanisms and processes by which the public sector is able
to deliver on its mandate.

This area has a very strong history throughout South Africa, and the world. Examples include programmes
such as the Community Works Programme (CWP) which provides a novel approach towards providing an
employment safety net. Crucially, much of the innovation within the public sector is very specific towards a
social and cultural group. Therefore, while there are certain similarities between social programmes in
different countries, each must be customised towards what is appropriate in a particular region.

It is critical, given the social challenges facing Gauteng, that Public Service Innovation is recognised and
supported. The Provincial Government has a number of very aggressive strategic targets. It is not certain
that, by continuing with business as usual, that GPG will be able to achieve those goals. It therefore
becomes necessary for the government itself to become innovative in fulfilling its mandate to the citizens of
Gauteng.

There is very little focus provided on PSI within the existing body of policy literature around innovation.
However, this strategy document puts forward the contention that accelerating and supporting PSI is crucial
in achieving the strategic goals of the department, and the province.

Much of the focus on innovation, as noted already, is on those types of innovation driven by the private
sector, for private sector consumers. However, there are significant efforts made in public service innovation
– in other words, in attempting to identify new mechanisms and processes by which the public sector is able
to deliver on its mandate.

One of the agencies of the National Department of Public Service and Administration is the Centre for Public
Sector Innovation (CPSI). The role of this institution is, self-evidently, to support public sector entities in
developing new, innovative mechanisms for service delivery. There is therefore recognition of the
importance of public sector innovation within the South African environment. However, this recognition is
independent of other support mechanisms for innovation; it also excludes any type of innovation for the
public sector – which arises from outside the public sector.

This is problematic, since there are countless solutions to public service challenges provided by private
sector groups, civil society, or the international environment.

A particular example of public innovation, which deals with the above problem, is Knowledge Management
Africa (KMAfrica). This project was established by, amongst others, the Development Bank of South Africa.
The strategic goals of KMAfrica are of particular relevance to this document, given the symmetry they show
with the proposed intervention mechanisms:

Enhance the implementation of knowledge management in Africa

Leverage the use of knowledge in policy and service delivery

Promote partnerships among the public sector, private sector, and civil society in the creation,
synthesis and use of knowledge

Build knowledge management networks that will enable the creation and utilisation of knowledge

Build an institutional infrastructure that will facilitate the implementation of the knowledge
management mandate across Africa

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 Open Innovation
“Open innovation is a paradigm that assumes that firms can and should use external ideas as well
as internal ideas, and internal and external paths to market, as the firms look to advance their
technology” Henry Chesbrough, 2003, Open Innovation

Although the above definition of open innovation speaks about innovation at the level of firms and
institutions, and focuses on technological innovation, the concept can quickly be applied to all forms of
innovation.

While the ability to connect inventors, innovators and entrepreneurs is important for a successful innovation
process, the simple dissemination of knowledge, know-how and expertise can also support and assist in the
process.

Interactions between these three agents will often bring new technologies, new services, and new solutions
into the market and society. However, by disseminating existing ideas, it becomes possible for individuals
and organisations to adopt newer and more efficient systems, which have already been innovated. Thus –
instead of creating new valuable knowledge, this particular process of open innovation can help spread the
most effective types of knowledge.

It is also important to understand the scale of information which can be accessed through open innovation.
South Africa, in 2006, produced approximately 0.5% of the world’s total research output. Phrased differently,
99.5% of all knowledge produced in that year occurred outside of South Africa. Although this relates
specifically to ‘basic’ research, the picture painted is that the vast majority of solutions are produced outside
the country. Even if South Africa were to achieve the Department of Science and Technology’s goal of 2.5%
of global research – this still leaves 97.5% produced elsewhere.

Open innovation is a mechanism by which this 99% of knowledge can be leveraged for the solution of South
Africa challenges.

Importantly, this type of diffusion can be utilised not simply by innovators and entrepreneurs, but in fact by
anyone who faces a similar challenge. Thus – solutions to problems become commonly shared amongst
society, and the most efficient and effective solutions can be implemented. Within this diffusion, we can
identify three ‘areas’:

1. Innovations which are new to the firm: these are innovations which individual organisations can adopt to
make their own processes more efficient and effective. These innovations may already exist in other
firms elsewhere
2. Innovations which are new to the country: these innovations have been developed outside of South
Africa, generally for the solution of challenges and consumer markets specific to other areas. However,
many of these innovations can either be directly applied, or modified slightly, to become effective within
South Africa
3. Innovations which are new to the world: these innovations are the absolutely ‘new’ innovations, ideas
that have been developed and implemented for the first time anywhere in the world

The idea of open innovation helps to drive the first two innovation types – it allows for more efficient
functioning and markets by adopting the most efficient processes and mechanisms. Open innovation can
also lead to “globally new innovations” but the largest impact will be through the diffusion processes of areas
1 and 2.

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 Appendix B: Innovation and Development
Innovation is the process by which we bring new ideas of value into use within society – thereby making
more efficient use of our resources and time, and finding better solutions to the challenges that face us. To
quote from Paul Romer, one of the founders of endogenous growth theory,

“A useful metaphor in an economy is in the kitchen. To create valuable final products, we mix inexpensive
ingredients together according to a recipe. The cooking one can do is limited by the supply of ingredients,
and most cooking in the economy produces undesirable side effects. If economic growth could be achieved
only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and
suffer from unacceptable levels of pollution and nuisance. Human history teaches us, however, that
economic growth springs from better recipes, not just from more cooking”

While the above refers more specifically to economic growth than “development”, the two are closely linked.
In fact, our first step in understanding the connection between innovation and development is to ask what we
mean by “development”. The term itself is heavil contested, and there are many ideas behind this. Quoting
Alan Thomas (2000:777) in Henry Bernstein (2006:1), there are three broad conceptions of the term
development:

1) as a vision, description or measure of the state of being a desirable society;

2) as an historial process of social change in which societies are transformed over long periods;
3) as consisting of deliberate efforts aimed at improvement on the part of various agencies, including
governments, all kinds of organisations and social movements. (emphasis in original)

The most appropriate of these ideas, in the context of the provincial government, is the third – the deliberate
attempts made by government aimed at the improvement of society. This immediately begs the question,
however, of what improvements are to be made? Is there a specific definition which the South African
government – and by extension, the provincial government – can use to understand what is meant by
development?

Such a definition does not exist, unfortunately. What does, however, exist, is a set of operational objectives
that are closely linked to the idea of development – in fact, are developmental objectives. These can
therefore be used a working definition for how and what government views to be development. These
objectives are given below:

Creating decent work and building a growing, inclusive economy

Strengthening the developmental state and good governance

Building cohesive and sustainable communities

Stimulating rural development and food security

Better health care for all

Promoting quality education and skills development

Intensifying the fight against crime and corruption

The above 7 objectives represent a functional definition of what development means for government – and
that achieving these will lead to Thomas’s first concept of development, that of being a desirable society.

So the question must then be asked for each – what is the relationship between innovation and that
objectives? Is there a connection between innovation and health care? Rural development? Education and
skills development?

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 A crude answer is that yes, there are connections between them. But this does not help guide us to
understanding what that connection is, whether it is beneficial or not, and how we can take advantage of it
where appropriate. So what is necessary is a short analysis of the role innovation plays in each of these
strategic objectives. However, although specific innovations may have a direct impact on many of these
objectives, in general innovation as an activity will play a dominant relationship with the first objective – that
of a growing economy. The relationship between innovation and economic growth, and with employment
creation, will be examined in some detail.

The remaining objectives are, in the current context, outcomes of either specific innovative products and
services, or a generally improved economic and social context. They will not necessarily directly benefit from
an enhanced innovation culture; certainly not in the same manner that economic growth will be directly
affected.

Innovation and Economic Growth

The development of economic models to describe economic growth has occurred over a long time.
Neoclassical economics – the dominant economic theory for the past century – has relied on a number of
constructions which describe growth in terms of, generally, capital stock, employment and total (or multi)
factor productivity.

In short, an economy was able to grow when either the capital invested in the economy grew, the total
labour force grew, or the means by which these two factors were combined was improved. This last item –
the improvement of the combination of factors of production is multi-factor productivity, and is nothing other
than a proxy for technological change. Technological change, of course, is nothing other than innovation.

The earlier models of growth treated the change in technology as an exogenous variable, however;
something that was outside the system they were modelling, and that could not be measured. Although the
Solow-Swan model used the rate of technological progress as the convergence rate for economic growth,
this rate itself was not determined by the model, or the theory. What this meant for policy development is
that there was some “natural” rate of progress which could not be enhanced or changed pro-actively.
Critiques of these neoclassical growth models led, amongst other things, to the development of what were
termed endogenous growth models. These models treat technological change as a variable or factor within
society which can be actively encouraged; importantly, this could lead to significant effects on economic
growth. This is because capital deepening and employment growth were in general restricted in the majority
of countries with established investment, and relatively low unemployment. Employment could then only
really grow with population growth, while capital would not need to be redeployed to purchase new
technology. Thus economic growth became dependent on the ability of an economy to innovate, to affect it’s
rate of technological change.

In this context, then, is there a measurable relationship between multi-factor productivity, and economic
growth? Much of the data for this is taken from the OECD group of countries, for which there is significant
data available. Figure A1 below shows the changes in multi-factor productivity along with changes in GDP
for the period 1987 to 2008, as an average of the OECD countries.

Although this aggregation creates a very crude depiction of the relationship, it is still apparent that falls in
MFP growth (1993 and 2003) coincide with falls in GDP growth. There are various reasons for this, and this
is not actually arguing a causal relationship between the two (though it may in fact exist). Instead, Figure A1
demonstrates the connection between the two; there is a wealth of literature which explores this connection.

22 | P a g e
 MFP Growth
GDP Growth Percentage
6 Average OECD Countries GDP Growth 6

MFP Growth Percentage

4 4

2 2

0 0

Figure A1: OECD MFP and GDP Growth

While the connection betweeen MFP and economic growth may be well established, the connection
between innovation and MFP is less established. Although there is a clear conceptual link between the two
(the rate of innovation simply being the rate of technological development, which is of course the rate of
MFP) what evidence is there that changes in innovation lead to changes in MFP?

Innovation is very difficult to quantify, as it is composed

composed of a range of “inputs” and “outputs” which do not
have a simple relationship. So various proxies are usually used to measure the input and output
characteristics of innovation. An example of an input proxy is the level of research and development
expenditure
penditure in a region. For an output proxy, the number of patents could be measured. The measurement
of innovation is an ongoing and important area of research in the global literature currently. However, there
are studies showing the relationship between innovation inputs such as R&D, and multi-factor
multi productivity.

Figure A2 below shows the relationship between MFP and the average intensity of business R&D. Business
R&D is plotted on the x-axis,
axis, while MFP is plotted on the y-axis.
y It shows that, in general,
genera as the intensity of
research increases (along the x-axis)
x the productivity of the region (along the y-axis)
axis) also increases. The
implication is that an increase in innovation inputs leads to an increase in multi-factor
multi factor productivity.

Figure A2:
A2 Change in MFP and in average intensity of business R&D

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 Box A1: Science, Technology and Innovation: Implications for Growth

Extracts from Science, Technology and Industry Outlook, OECD 2001

A cursory comparison illustrates that a strong correlation exists between GDP per capita, and formal
R&D. Analyses of the link between increases in business expenditures for R&D (BERD) and increases
in MFP show a similar relationship (Figure A2 above): OECD countries in which business expenditure
on R&D relative to GDP grew most rapidly from the 1980s to the 1990s typically experienced the
largest rates of MFP growth. However, importantly, not all countries with increased expenditure on
business R&D saw an improvement on MFP. Some experienced marked declines in MFP despite
growing levels of BERD. This distinction emphasises the fact that increases in R&D funding are, by
themselves, insufficient to drive improvements in MFP and economic growth. The way in which R&D
funds are allocated (e.g. the institutions to which they are directed, the fields of science and industry to
which they are related, and the kinds of mechanisms used to finance R&D) and the processes for
commercialising and disseminating knowledge, matter crucially...

Cross country comparisons of growth patterns provide additional insight into the elements that underlie
differences in R&D efficiency across the OECD. Recent econometric analysis of 16 OECD countries
reaffirms that increases in private sector, public sector and foreign R&D all contribute to increases in
MFP.

Guellec and van Pottelsberghe2 identify a connection between the long term impact on multi-factor
productivity given an increase in expenditure on research and development by various institutions, including
private and public R&D. This is summarised below in Table A1:

Business R&D Public R&D

Long term elasticities of MFP 0.131 0.172
Table A1: Long term elasticities of output with respect to R&D variables

What Table A1 shows us is that for a 1% permanent increase in Business R&D, there is a 0.13% increase in
MFP; similarly a 1% increase in public-led R&D leads to a 0.17% increase in MFP. Activities that therefore
stimulate research and development are likely to lead to a long term increase in MFP, and consequently to
economic growth. Quoting from Guellec et al., “doing R&D is important for productivity and economic growth.
… The social return on business R&D is then higher than its private return, which is a possible justification
for some sort of government support to business R&D”.

What is important in the context of this strategy, hwoever, is not directly the support for research and
development. Instead, the importance of changes in multi-factor productivity – in innovation – and these
changes are driven by innovation activities (of which R&D is one). So the important policy implication to be
taken away is for the support of innovation activities, in order to drive MFP – ultimately in order to enhance
economic growth.

Innovation and Employment

The central priority for South Africa at present is addressing the employment needs of citizens. So-called
“jobless growth” has characterised the South African economy for much of the last decade, and even while
many efforts were made in the creation of jobs, the scale of the problem remains significant. This has been

2 Guellec, D, and van Pottelsberghe, B., R&D and Productivity Growth: Panel Data Analysis of 16 OECD countries, OECD

Economic Studies 33, 2001/II

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 further exacerbated by the global economic downturn of 2008-9, and the loss of in the region of a million
jobs in South Africa in this period3.

Employment therefore represents the largest economic challenge for South African society, and addressing
employment growth will have numerous additional benefits, such as an increased tax base, reduced
dependency on welfare, increased social cohesion, reduced crime and many others.

How does innovation play a role in employment creation? It is, unsurprisingly, a double-edged sword. On the
one hand, process innovation leads to a substitution of capital for labour. This is because there are rapid
productivity gains with new technology in the production process. Product innovation may also lead to job
losses, as less competitive products are displaced from the market (along with the people manufacturing
them). However, the same reasons for job losses provide opportunities for job creation. More efficient
production processes lead to an expansion of production, and hence an increase in employment; new
products require many more people to work in new factories. So the question becomes – which of these
effects dominates?

Pianta4 provides a broad “study of studies” where he analyses a variety of research about the positive or
negative impact which innovation has on employment. The broad results from the studies show mixed
results depending on the level of study, i.e. at firm, industry or macro-economic level. Table A2 below gives
a summary of the results.

Number Positive Negative Neutral Notes

Firm 9 8 3 0 2 studies indicated differences in outcomes
due to product or process innovation
Industry 6 3 5 2 4 studies indicated differences in outcome
due to product or process innovation
Macro- 8 1 7 6 studies showed that there was significant
economy differentiation by country and time period
Table A2: Summary of results of Pianta, 2003

Table A2 shows firstly that there are dramatic differences between the impacts of innovation at firm, industry
and macro levels. Secondly, that a clear distinction must be made between the impacts of process
innovation (which were often found to be negative) and that of product innovation (which were found to be
positive). So the lesson that can be learnt from the Pianta synthetic review is that in general, process
innovations lead to job losses, while product innovations lead to job creation.

However, an important criticism of Pianta – especially in the context of Gauteng – are the subjects of the
studies. All the studies were performed on advanced countries with high technology bases and relatively
close to the technology frontier itself (if not at it, such as the US). These countries manufacturing and other
industries tend to be far more advanced, and already users and producers of “high technology”. Gauteng is
not at the same technology position, and is not focussed on the development of high technology
manufacturing industries. Instead, a focus on low- and medium-technology manufacturing is a core
component of the Gauteng Industrial Policy. So the question then becomes – is there evidence that these
same findings hold for areas which are focussed on low- and medium-tech innovation?

Merikull5 analysed the impact of innovation in Estonia, which shares closer similarities to South Africa and
Gauteng than an advanced economy such as France or Germany. Merikull found “innovation positively

3 Labour Force Survey Q3 2008, Q3 2010, Statistics South Africa, www.statssa.gov.za

4 Pianta, M. Innovation and Employment, The Oxford Handbook of Innovation, Ch 22, 2003
5 Merikull, J. The Impact of Innovation on Employment, Eastern European Economics vol 48, no 2

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 affects employment growth resulting from the strong effect of process innovation in the medium- and low-
tech industries”.

This is an important differentiator, because it illustrates that in medium- and low-tech industries which are
dominated by semi- and unskilled workers, process innovations lead to growth in employment.

Although additional research should be undertaken to understand the Gauteng-specific relationship between
innovation and employment, it is clear that there is strong evidence to show that innovation, if correctly
channeled, can be a strong driver of employment growth.

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 Appendix C: Systems of Innovation
There are a variety of definitions for the concept of a System of Innovation, some of which are presented
below:

“The network of institutions in the public and private sectors whose activities and interactions initiate, import,
modify and diffuse new technologies” Freeman, 1995, The National System of Innovation in Historical
Perspective

“The elements and relationships which interact in the production, diffusion, and use of new, and
economically useful, knowledge… and are either located within or rooted inside the borders of a nation
state” Lundvall (ed), 1992, National Innovation Systems: Towards a Theory of Innovation and Interactive
Learning

“A set of institutions whose interactions determine the innovative performance… of national firms” Nelson
(ed), 1993, National Innovation Systems: A Comparative Analysis

“The national institutions, their incentive structures and their competencies, that determine the rate and
direction of technological learning (or the volume and composition of change generating activities) in a
country” Patel and Pavitt, 1994, The Nature and Economic Importance of National Innovation Systems

“… that set of distinct institutions which jointly and individually contribute to the development and diffusion of
new technologies and which provides the framework within which governments form and implement policies
to influence the innovation process. As such, it is a system of interconnected institutions to create, store and
transfer the knowledge, skills and artefacts which define new technologies.” Metcalfe, 1995, The Economic
Foundations of Technology Policy

All of the definitions present several common ideas that then make up the basic concept of a system of
innovation:

The system is composed of institutions and entities

The system acts upon the innovative, technological state of the country through various means
including importing, developing, inventing and diffusing new technologies

The relationships and interactions between the entities is critical to its ability to affect the
environment

The system is located within a common geographic region

By way of example, the South African National System of Innovation (NSI) is shown below in figure 4.1.

The following characteristics are evident in the NSI:

1. The importance which is placed on two ministries in supporting the innovation process – Science and
Technology, and Education.
2. The importance of the various institutions that result in innovation, and research and development,
being the Higher Education Institutes, Public and Private Research Institutes, Business, Enterprises,
and Non-governmental organisations

According to the National Advisory Council on Innovation (NACI), the NSI is therefore well-defined in terms
of the above common characteristics of an Innovation System.

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 CONSTITUTION

Minister and Dept Minister and Dept Other Ministers

of Education of Sci & Tech and Departments

Policies, Governance and Resourcing

Human Capital R&D Innovation

HEIs, PRIs, Business, HEIs, PRIs,

HEIs
Enterprises, NGOs Business etc.

Public and Private Users

Figure B1: South African National System of Innovation

A System of Innovation is useful, because, as the one definition states, they “provide the framework within
which governments form and implement policies to influence the innovation process”.

It is therefore critical to develop a robust and comprehensive description of the system which supports
innovation within Gauteng, before any Innovation Strategy can be developed. This is the subject of Section
5. First, though, it is necessary to understand the linkage between Innovation and Development.

An Updated System of Innovation

Before an appropriate set of strategic interventions can be crafted, it is necessary to consider whether the
System of Innovation can be expanded to take account of the expanded understanding of innovation, as
described in Section 3.

We see that the System of Innovation, for both Gauteng and South Africa, can be adjusted to take account
of these changes in the construction of the Innovation Concept. In particular, we see that the original System
of Innovation can be adjusted because of two reasons:

1. The current innovation system gives overt significance to the role played by Science and Technology
within Innovation. Although this is a critical component of innovation, it ignores several areas that are of
paramount importance to South Africa in particular. These include:

The importance of social and community-based innovations in service delivery

The importance of non-technological innovation, such as marketing and process innovations
2. The current innovation system assumes that innovation is performed by institutions and entities
involved, for example, in research & development of a particular product. However, as noted in Section
3, there is a significant proportion of innovation undertaken by individuals, communities, and members
of society. In the existing description, the public is viewed exclusively as an end-user of technology.

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 We therefore include the role of socially oriented innovators and innovations, as well as the full role played
by the community. An expanded definition of the local Innovation System will then be as follows.

The Gauteng Regional Innovation System (RIS) is the entire system of innovating agents and
entities, along with their end-users, which together are responsible for the development, production,
and use of new knowledge which is both socially and economically useful. This System will provide
the framework within which the Provincial Government is able to catalyse, support and facilitate the
innovation process, through policy and targeted interventions.

A graphical representation of this is given below in Figure B2.

According to this classification, the RIS is divided into 4 primary areas. These are:

1: The Demand Agents of Innovations

2: The Supply Agents of Innovation

3: Supply-affecting factors

4: The overall policy environment

There is a further ‘ring’ that affects this System, which is the overall global environment. The direction which
global society moves will ultimately affect, and influence, the performance and activity within South Africa,
and of course Gauteng.

4
3
Incentives
Colleges

2 Resources
Community

HEIs
1
Academia CIVIL SOCIETY Public
& Sector Funding
CONSUMERS

Policy

Private
Sector Governance

Primary
Education
International
Environment

Figure B2: The Innovation System for Gauteng Province

It is important for us to redefine our innovation system, because it directly tells us where, and how, we can
begin to implement changes in order to bolster innovation.

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 At the same time, it tells us in which direction we should be catalysing innovation, through the consideration
of the overall socio-economic mandate of the government.

For example, in the previous construction of the National Innovation System, there was no explicit attention
given to the needs of social innovators. Instead, the prevalence of the Department of Science and
Technology was such that scientific and technological innovations – which tend to be product innovations –
were brought to the fore. In the current description, equal attention is paid to the social needs of society, as
to the material needs.

Equally, by locating the Community within the group of Innovators (at Level 2) we recognise the importance
of individuals, community-based organisations and other groups which do not have a formal affiliation with
some research-focussed group. However, these groups are often at the forefront of social innovations, and
must be equally recognised.

Furthermore, by recognising the community – ultimately composed of individuals – as a source of

innovation, we can begin to identify potential incentives directly to individuals in order to promote and
encourage innovation or research-focussed work.

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 Appendix D: National and Provincial Policies
The final component that must be considered before the development of any strategic interventions is the
overall direction which Government is pursuing as part of its social mandate. While National Government
provides the overall framework and direction of public-sector innovation, the Provincial Government still has
a crucial role to play as the Regional Authority.

This will ensure that any and all interventions are closely aligned to both national and provincial priorities,
and will accelerate the achievement of these priorities.

National Government Policies

There are a range of national government policies that will impact on the focus of the various strategic
interventions. These provide an overall policy context, and include strategies such as:

The ANC Manifesto, as contained within the Polokwane Resolutions of 2008

The various Millennium Development Goals

Industrial Policy Action Plan

ASGISA

Various National Treasury regulations

Two specific policies which are important to consider because of their relevance to the Provincial Strategies,
are the Industrial Policy Action Plan, and the 10 Year Innovation Plan.

Industrial Policy Action Plan (IPAP)

The last release of the IPAP was August 2007, however, Minister Davies provided insight into the new Plan
in December of 2009.

“We in South Africa will shortly be adopting our next Industrial Policy Action Plan. This will focus on
stimulating industrial activities capable of producing inputs to support infrastructure programmes, energy
savings and green jobs and agro industries. We will also take forward our programmes in the automotives
sector, clothing and textiles and chemicals amongst others. While we pursue our own national programme,
we are also conscious of the need to support initiatives at the regional and continental level.

In this regard, we are working to build industrial standards and norms including institutions to enforce these
standards, build industrial innovation systems, invest in energy security especially renewable energy, and
build responsive human capital development systems in our region and across the continent. Our efforts in
these areas are at an initial stage, but with the help of our development partners, we are beginning to see
some signs of progress.”

Dr Rob Davies, Minister of Trade & Industry, UNIDO 13th General Conference, 7 Dec 2009

This Innovation Strategy has purposefully aligned itself with the appropriate areas of the new IPAP, particularly
with the focus on green technology, and support for those manufacturing industries with a provincial presence.
Further alignment will be undertaken with the finalisation of the Gauteng Industrial Policy (discussed below).

10 Year Innovation Plan

The Department of Science and Technology released the Ten Year Innovation Plan, a Cabinet-level plan
that seeks to achieve a number of outcomes for South Africa. These are contained in five “Grand Challenge”
areas:

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The “Farmer to Pharma” value chain to strengthen the bio-economy – over the next decade South
Africa must become a world leader in biotechnology and the pharmaceuticals, based on the
nation’s indigenous resources and expanding knowledge base.

Space science and technology – South Africa should become a key contributor to global space
science and technology, with a National Space Agency, a growing satellite industry, and a range of
innovations in space sciences, earth observation, communications, navigation and engineering.

Energy security – the race is on for safe, clean, affordable and reliable energy supply, and South
Africa must meet its medium-term energy supply requirements while innovating for the long term in
clean coal technologies, nuclear energy, renewable energy and the promise of the “hydrogen
economy”.

Global change science with a focus on climate change – South Africa’s geographic position
enables us to play a leading role in climate change science.

Human and social dynamics – as a leading voice among developing countries, South Africa should
contribute to a greater global understanding of shifting social dynamics, and the role of science in
stimulating growth and development.

These areas remain closely connected with the provincial government priorities, as detailed below. This is
especially the case in the drive for areas such as ‘clean technologies’, energy security, and climate change.

The Innovation Strategy actively responds to three key areas of the 10 Year Innovation Plan – it specifically
addresses energy security and global change science, with the focus on Green Technology. It also addresses
issues around Human and Social Dynamics, by placing emphasis on the importance of collaborative innovation
actions within Social and Public Innovation

The Innovation Agency

The Technology Innovation Agency (TIA) is a new public entity that is aimed at stimulating and intensifying
innovation and inventions in order to improve the economic growth as well as enhance the quality of life of
all South Africans by developing and exploiting technological innovations and interventions and creating an
enabling environment wherein these could be commercialized. The objectives of TIA are:

Stimulating the development of technology-based services and products;

Stimulating the development of technology-based enterprises - both public and private;

Providing a nursery for technology commercialisation;

Stimulating investment by means of venture capital, foreign direct investment, and other
mechanisms;

Facilitating the development of human capital for innovation.

The Innovation Agency is in the process of being established, and the appropriate legislation still needs to
be enacted through Parliament.

Although this Strategy has taken the objectives of TIA into consideration, formal relationships and
engagements cannot be suggested until such time as the Agency is formally constituted.

Provincial Government Policies

The provincial government has a different and independent mandate from National Government, as laid out
in the South African constitution. Therefore, although the province follows the country in terms of the overall
policy direction, there are certain specific areas which the province has a more direct influence over.

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 At the same time, it is important to ensure that any interventions designed to accelerate innovation within the
province are closely aligned to other provincial strategy documents, as discussed below.

Overall, however, the following focus areas were laid out in the Premier’s State of the Province address, as
cross-cutting policies that must be present in all government strategy:

Creating decent work and building a growing, inclusive economy

Strengthening the developmental state and good governance

Building cohesive and sustainable communities

Stimulating rural development and food security

Better health care for all

Promoting quality education and skills development

Intensifying the fight against crime and corruption

The following policy documents have been considered in constructing this Innovation Strategy. The various
policies are at different stages of development as at 01 February 2010. As and when new revisions are
released, adjustments and modifications to this Strategy Document will be considered.

Gauteng Employment Growth and Development Strategy

Gauteng Industrial Policy

Green Jobs Strategy

Gauteng Integrated Energy Strategy

Information and Communication Technology Strategy6

Local Economic Development Strategy

The 2009 Business Environment Assessment Report

Gauteng 2055

Gauteng Employment Growth and Development Strategy

The Gauteng Employment Growth and Development Strategy (GEGDS) presents a series of medium-term
strategies aimed at ensuring equitable job creation, inclusive economic growth, and improved social welfare
for all of Gauteng’s citizens. The GEGDS is characterised by four central strategies:

Cross-cutting measures to enhance overall economic efficiency and productivity: improving the
reliability and cost-effectiveness of core economic infrastructure (electricity, transport,
telecommunications and water); identifying and addressing skill bottlenecks, especially amongst
professionals and artisans; and reducing unnecessary red tape and high costs to economic actors
for low-priority regulations and programmes.

Ensuring more inclusive growth: In the coming year, vastly increasing opportunities for the
unemployed, especially young people, through community-based public employment schemes
supplemented by educational and cultural programmes, combined with increased emphasis on
local procurement in order to protect employment as far as possible. In the coming five to ten years,
increasing support for labour-absorbing sectors, especially in the agricultural value chain, light
manufacturing, construction, retail and services; encouraging more equitable access to wealth,
including through broad-based ownership schemes and the housing programme, as well as
improvements in basic education and expanded access to post-school training and higher
education (the latter based increasingly based on merit rather than ability to pay).

Improving the mobilisation of domestic resources for development: Exploring ways to channel
contractual savings into developmental projects in a sustainable fashion, and greatly strengthening

6 The ICT Strategy is currently only in Proposal Form, and cannot yet be considered

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 local procurement efforts in order to reduce dependence on imports and consequently foreign
financing.

Laying the basis for long-term growth: Continuing to support knowledge-intensive industries, above
all by gradually strengthening the provincial centres of excellence in tertiary research, education,
healthcare and capital goods production.

The Innovation Strategy responds to all four of the GEGDS central strategies:

Innovation is one of the cross-cutting measures to enhance overall efficiency and productivity, both of
labour (through innovative organisational structuring, new industries) and capital (again through new
industries, and through more efficient use of resources)

Through supporting social and public innovation to drive service delivery and public goods, this ensures
that we achieve a more inclusive society

By creating local value chains through economic, social and public innovation, creating and
strengthening local industry and development

By creating and sharing new knowledge, driving the importance of a knowledge-based society for
future growth

Gauteng Industrial Policy

The Industrial Policy for Gauteng is under development by the DED. The current Preliminary Report puts
forward that “Industrial policy needs to be focused upon structural transformation of the Gauteng economy”.

The current research indicates that:

“An analysis of value-added, investment, output and employment trends across services and manufacturing
supports the case for the development of medium-tech, light manufacturing sectors with relatively low
investment to output ratios and high labour intensities. These include textiles, clothing and leather, electrical
machinery and apparatus, and furniture and other manufactures. This analysis also highlighted the limitation
of business services as a driving sector for the massive expansion of employment owing to a high
investment-output ratio.”

Although formal analysis of this policy is not yet possible, it is expected that the document will be broadly
aligned to other existing documents. It may require that certain components of the Innovation Strategy are
refined to take account of regional specifics, but this will not affect the initial focus on Green Technology.

Green Economy Strategy

”A Green Economy is one in which business processes are infrastructure reconfigured “to deliver better
returns on natural, human and economic capital investments, while at the same time reducing greenhouse
gas emissions, extracting and using fewer natural resources, creating less waste and reducing social
disparities.”7

This statement, taken from the Green Economy Strategy draft document, outlines the basic idea which is a
core policy objective not only of Gauteng, but also South Africa.

At an international level this led to South Africa joining with the other G20 nations to make a number of
recent commitments in this space:

7 UNEP, Global Green New Deal: An Update for the G20 Pittsburgh Summit, ii.

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“We will make the transition towards clean, innovative, resource efficient, low carbon technologies
and infrastructure.”8

“As leaders of the world’s major economies, we are working for a resilient, sustainable and green
economy.”9
The Green Economy Strategy, in order to guide Gauteng in moving towards this form of economic thinking,
puts forward a number of policy options, as well as intervention strategies. There are clear references to the
need for innovation, and there are also clear needs for innovation to play a greater role in supporting a
Green Economy.

Of the various policy options proposed, one of the first is to promote innovation in existing processes and
new technologies [related to a green economy].

Because innovation relates equally to technology transfer, as technology development, the importing of
appropriate green technology while the local industry is underdeveloped, remains an area of innovation that
must be supported and facilitated.

Furthermore, a number of the actual projects suggested (e.g. legislation around solar water heaters, waste
management, alternative fuel and transport systems) all require innovation of various types. These include
technological innovation (e.g. for the development of cleaner fuels), social innovations (such as facilitating
local food production areas) to organisational and industrial innovation, for example, the development of an
entire solar energy industry within the province.

Throughout the Innovation Strategy, prevalence is given to the development of Green Technologies – this is a
specific response to the importance of the Green Economy in the future activity of the province, and the
sustainable development of our society.

Gauteng Integrated Energy Strategy

The Gauteng Integrated Energy Strategy (GIES) was developed in response to the challenges associated
with global climate change, the global economic meltdown and the electricity crisis in South Africa. Thus the
strategy aims to improve Gauteng’s environment, reduce Gauteng’s contribution to climate change and
tackle energy poverty, whilst at the same time promoting economic development in the province. The
purpose of the Gauteng Integrated Energy Strategy and Implementation Plan is to direct the way that energy
is supplied and used within the Gauteng province during the next 5 years (2014); 16 years (2025); 46 years
(2055) and beyond, in an integrated and sustainable manner. This will be done by advancing and driving
energy efficiency and supporting an energy supply mix that includes renewable energy technologies across
the province.

Furthermore within industry, commerce and civil society, many initiatives and attempts at making changes
have been instigated. The large industry sector in particular has begun to work on their carbon footprint and
reduce their energy consumption. What is lacking and what this strategy will attempt to do is to integrate the
many initiatives across the different sectors in such a way as to provide cohesion, alignment and co-
operation. Thus, this strategy is expected to provide a framework for these diverse and laudable initiatives in
order to ensure that the whole is bigger than the sum of its parts and in doing so being a catalyst for change
across the province.

One of the action plans of the GIES is to “Promote Innovation and Clean Energy Technologies”. This is to be
achieved through four main objectives:

8 G20, London, 2 April 2009

9 G20, Pittsburgh, 24-25 Sept 2009

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Build strong relationships and networks with research institutes, academia and potential funders

Set agenda according to province’s needs to guide research development

Develop a supportive environment for new business development in the clean energy technology
sector

Build awareness

The Innovation Strategy has paid careful attention to these objectives, and is aligned to them as following:

By creating the Flow Networks, relationships are not only strengthened, but also created; importantly,
these relationships are not just between the agents identified within the GIES, but also the community
as well – ensuring public participation throughout

By focusing innovation incentives on Green Technologies, research is persuaded towards the
Province’s objectives

The development of Innovation Clusters, and industrial innovations within this area, speak to the
development of a supportive environment for business

Awareness is developed by the establishment of the Flow Network, communities, individuals and
organizations are brought into contact with each other, and with solutions for clean technologies

Local Economic Development Strategy

For Local Economic Development (LED) in Gauteng to contribute significantly to attainment of sustainable
economic growth and employment targets, substantial changes are required in the way LED is conceived
and implemented. Whereas progress is evident, LED in Gauteng municipalities still needs to mature to a
level where it is able to make a significant contribution to economic growth, employment and equity shifts.
The challenges are broader than capacity of LED units, and points to a number of systemic deficiencies.

The Department of Economic Development (DED) of Gauteng initiated the development of a Strategic
Framework for LED in Gauteng that seeks to address these challenges. This LED framework therefore aims
to increase the number of local economies that benefit significantly from sound LED, by contributing:

1. An Assessment of the current challenges,

2. Guidelines for more effective LED,
3. A vision of a desired future state of LED,
4. A statement of expectations of key LED stakeholders (Roles and functions), and
5. Definition of the contribution by Province, through six focussed programmes.

The LED Strategy specifically references innovation in two areas: self-evaluation and learning, and
technology research. The strategy is not clear, however, on the exact mechanism by which innovation is
meant to take place in reference to LED.

One of the characteristics of the Desired Future State of LED within Gauteng, is learning and improving LED
faster. This is achieved through the development of a climate which is conducive to economic learning, and
innovation.

In addition, strengthening local innovation systems is seen as a core responsibility of universities, who are
also responsible for the establishment of Technology Transfer Stations.

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 The Gauteng Innovation Strategy greatly values local economic development ; this is evident from the
importance given to both social innovation, as well as the focus on the creation of local value chains. It seeks to
expand and strengthen certain aspects of the LED Strategy, by creating additional mechanisms for improved
service delivery, local industrial support, and social development. Specifically,

The Flow Network provides an opportunity for interaction between local communities, municipality and
ward councils, SMMEs and other stakeholders in sharing knowledge and solutions. In combination
with functions such as Knowledge Management Africa, this acts as a key driver for LED innovation

In addition, the Flow Network allows all stakeholders to function in strengthening the local innovation
systems, adding to the existing ability of universities

Cluster Development is fundamentally designed to drive local economic activity; this is able to act as a
catalyst for further growth

2009 Business Environment Assessment in Gauteng

This report (often referred to as the “Cost of Doing Business Report”) was compiled in order to understand
the challenges facing the business sector within the province. Recommendations of the report were then
designed to alleviate and/or mitigate these challenges.

The report itself found that the three largest “internal” issues were:

Roads, traffic and transport

Lack of skills

Crime

However, far and away the most critical challenge for business was simply “Market Conditions”. This is
shown below in Figure C1: Main Challenges to doing Business

Figure C1: Main Challenges to Doing Business, 2009 BEA for Gauteng, SBP, 2009

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 The majority of concerns raised by the private sector are, relatively speaking, simple to engage with. As such,
an “innovative environment” – or the lack of specific innovation support mechanisms - is not necessarily seen as
a hindrance to business activity.

In that sense, the Innovation Strategy does not directly address any of the major concerns raised by the
Business Environment Assessment – except for the ‘market conditions’ challenge. Even this is approached in a
subtle manner.

Market conditions are a complex combination of both local, and international, supply and demand challenges.
Throughout all economic activity are different levels of efficiency – it is here, that innovation can subtly affect
market conditions. By increasing the efficiency, not only of the production chain itself, but also even of products,
local industries become more competitive. This results not in easier trading conditions, but in a stronger ability to
trade.

The entire Innovation Strategy is geared towards this – creating stronger and more competitive activities within
the province.

Gauteng 2055

The Gauteng Vision 2055 process takes its mandate as one of the 11 Strategic Pathways of the Gauteng
City Region (GCR) Road Map. The GCR is an inter-governmental process of structured engagement that
includes the Gauteng Provincial Government (the GPG), the three metropolitan and the three district
municipalities and the local municipalities within the boundaries of the Gauteng Province. The concept of the
GCR is that an integrated functional economic region that transcends administrative boundaries, and
recognises that Gauteng Province lies at the hub of South Africa’s globally connected economy. There are
some 10.5 million people living with the Gauteng boundaries of the GCR, and an additional 2 million people
living within the surrounding provinces of North West, Limpopo, Mpumalanga and the Free State.

Scenario planning has therefore been used to define a ‘best case’ scenario for Gauteng in 2055. The best
case scenario is derived through (1) assuming a median or ‘central tendency’ scenario for the key global,
African and national driving forces affecting Gauteng and (2) assuming that the City Region makes the best
possible effort to address those forces. Unpredictable events which will throw these scenarios awry are
identified as ‘triggers’ where the effect would be positive and ‘tripwires’ where the effect would be negative.

Through linking scenario planning with its various planning processes, the government and people of
Gauteng will be in a position to prepare for and avoid the future ‘tripwires’ that would pose major risks, on
the one hand, and instead discover and exploit the ‘triggers’ that would allow rapid economic growth and
social progress on the other.

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